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Tax Facts RATES AND ALLOWANCES GUIDE

UNLOCKING TAX

www.hazlewoods.co.uk

2020 / 2021


CONTENTS PERSONAL TAX

Page

Income tax rates and allowances 1 Timetable for self-assessment 3 Pensions 3 Capital gains tax 4 Inheritance tax 5 Investments 6 BUSINESS TAX Corporation tax Capital allowances R&D and Patent Box Corporation tax self-assessment and quarterly payments Employee benefits Approved mileage rates National insurance contributions

7 7 7 8 8 9 10

INDIRECT TAX VAT 11 Stamp duties 11 Annual tax on enveloped dwellings 12 PROPOSED CHANGES 2021/22 13


PERSONAL TAX INCOME TAX RATES AND ALLOWANCES Personal allowances#

2020/21 2019/20

Personal allowance* Transferable marriage allowance** 10% married couple’s allowance*** Dividend allowance Blind person’s allowance

£12,500 £1,250 £9,075 £2,000 £2,500

£12,500 £1,250 £8,915 £2,000 £2,450

# £1,000 allowance each for property and trading income available subject to various restrictions. * The personal allowance is restricted by £1 for every £2 of income over £100,000, to a minimum of nil. ** Only available where both spouses are basic rate taxpayers. *** Married couple’s allowance is available where either partner was born before 6/4/1935 and is reduced by £1 for every £2 of income over £30,200 (£29,600 for 2019/20) to a minimum of £3,510 (£3,450 for 2019/20).

Non-savings and savings income

2020/21 Taxable income

2019/20 Taxable income

0% starting rate for savings* £5,000 £5,000 20% basic rate up to £37,500 up to £37,500 40% higher rate £37,501 - £150,000 £37,501 - £150,000 45% additional rate# over £150,000 over £150,000 Personal savings allowance for £1,000 £1,000 basic rate taxpayers Personal savings allowance for higher rate £500 £500 taxpayers (nil for additional rate taxpayers) Dividend income**

2020/21 2019/20

Basic rate Higher rate Additional rate#

7.5% 7.5% 32.5% 32.5% 38.1% 38.1%

* The starting savings rate is restricted by non-savings taxable income. No allowance will be available if the non-savings income exceeds the personal allowance plus the £5,000 starting rate. ** A £2,000 dividend allowance is available, above which the rates shown are payable. # Rate applicable for trusts. 1


INCOME TAX RATES AND ALLOWANCES High income child benefit charge (HICBC)

2020/21

2019/20

HICBC paid by spouse/partner with higher income if income exceeds*

£50,000

£50,000

Income above which HICBC is full amount of child benefit received**

£60,000

£60,000

Every £100 of income above £50,000 adds one percentage point to the rate of HICBC. HICBC is charged on the amount of child benefit received. * Taxable income net of gift aid and allowable pension contributions, but not personal reliefs. ** No HICBC if person entitled to child benefit elects not to receive child benefit.

Rent a room relief Income threshold – gross receipts £7,500 Individual savings account (ISA) limit

2020/21

2019/20

Maximum contribution

£20,000

£20,000

£9,000

£4,368

Junior ISA – maximum contribution*

* Available for children under age 18 who live in the UK and do not have a child trust fund.

Lifetime ISA Upper age limit Annual contribution limit Government contribution

2020/21

2019/20

40

40

£4,000

£4,000

25%

25%

Withdrawals can be made after 12 months to buy a home or for any reason after the age of 60. Other withdrawals are subject to a 25% penalty.

2


TIMETABLE FOR SELF-ASSESSMENT Date

Event

31 July 2020

Second payment on account for 2019/20

5 October 2020

Deadline for notification of chargeability 2019/20

31 October 2020

File paper return for 2019/20 for HMRC

30 December 2020

File return for 2019/20 for a tax underpayment of less than £3,000 to be collected via PAYE during 2021/22

31 January 2021

File electronic return for 2019/20 Balancing payment for 2019/20 First payment on account for 2020/21

PENSIONS

2020/21 2019/20

Maximum tax allowable contributions* Maximum tax allowable contributions not restricted to earnings Lifetime allowance – maximum pension fund

£40,000**

£40,000**

£3,600

£3,600

£1,073,100

£1,055,000

Special rules attribute value to defined benefit (final salary) and other pension arrangements. * Employee contributions are also limited to taxable earnings/trading income if higher than the minimum contribution. Annual allowance will still be increased by unused relief for three previous tax years. ** The standard annual allowance will be reduced by £1 for every £2 of ‘adjusted income’ (which includes employer pension contributions) above £240,000 (£150,000 2019/20) to a minimum of £4,000 (£10,000 2019/20) but only if an individual also has ‘threshold income’ (broadly, an individual’s taxable income) of over £200,000 (£110,000 2019/20).

A charge is applied to any excess pension contributions over and above the total allowance. The charge is linked to the individual’s marginal rate. A tax charge arises if the value of the pension at retirement exceeds the lifetime allowance of £1,073,100. The tax charge is 55% if the amount over the lifetime allowance is paid as a lump sum and 25% if it is not taken as a lump sum. The annual allowance is reduced to £4,000 if more than 25% pension commencement lump sum has been drawn from a defined contribution pot, flexible drawdown has commenced or the income limit for capped drawdown has been exceeded. 3


CAPITAL GAINS TAX Annual exempt amounts Individuals and personal representatives Trusts generally

2020/21 £12,300 £6,150

2019/20 £12,000 £6,000

Rates of tax Individuals - basic rate* Individuals – higher or additional rate* Entrepreneurs’ relief Entrepreneurs’ relief lifetime limit on gains** Investors’ relief Investors’ relief lifetime limit on gains Companies (corporation tax rates) Trusts and personal representatives*

2020/21 10% 20% 10% £1m 10% £10m 19% 20%

2019/20 10% 20% 10% £10m 10% £10m 19% 20%

* 8% surcharge for gains on residential property and carried interest. ** The £1 million limit applies to disposals on or after 11 March 2020, subject to anti-forestalling rules.

Qualifying criteria for entrepreneurs’ relief and investors’ relief Description Acquisition of shares Type of shares Holding period

Minimum shareholding

Company requirement Employment condition

Entrepreneurs’ relief* At any point from anyone Any 24 months to date of disposal (12 months for disposals pre 6 April 2019) 5% of ordinary share capital, voting rights and entitlement to proceeds on disposal** unless through EMI Trading company or holding company of a trading group Employees or officer for at least 24 months prior to disposal

Investors’ relief Subscription for new shares after 16 March 2016 Ordinary 36 months to date of disposal, (commencing from 6 April 2016 at the earliest) N/A

Unlisted trading company or unlisted holding company of a trading group Investor and its associates must not be an employee or officer (some exceptions apply)

* Now called business asset disposal relief. ** An alternative condition of beneficial entitlement to 5% of profits available for distribution and 5% of assets available on a winding up throughout the entire qualifying period can be met instead of the 5% entitlement to proceeds on disposal condition. 4


INHERITANCE TAX Rates 0% 40% (death rate)* 20% (lifetime rate) Residence nil rate band**

2020/21 Up to £325,000 Over £325,000 Over £325,000 Up to £175,000

2019/20 Up to £325,000 Over £325,000 Over £325,000 Up to £150,000

Any unused percentage of the nil rate band from the estate of a previously deceased spouse can be used on the death of the second spouse. * A reduced rate of 36% applies where the deceased leaves at least 10% of their net estate to charity. ** The residence nil rate band applies for a home passed to a direct descendent, but is restricted where the estate is worth more than £2 million.

Major exemptions Gifts to UK domiciled spouse Gifts to non-UK domiciled spouse Gifts to charities Annual gifts* Small gifts to different individuals Gift on marriage - By parent - By remoter ancestor - By other person Regular gifts out of surplus income Most transfers between individuals, if donor survives for 7 years

Unlimited £325,000 Unlimited £3,000 £250 £5,000 £2,500 £1,000 Unlimited

* Unused annual allowance can be carried forward for one year only.

Taper relief Taper relief is given in respect of chargeable gifts made between 3 and 7 years before death. Years between gift and death Less than 3 3 to 4 4 to 5 5 to 6 6 to 7 7 or more

Tax rate 40% 32% 24% 16% 8% 0% 5


INHERITANCE TAX Agricultural property relief Vacant possession available within 24 months Landlords’ interest in let farmland - for new tenancies let after 31 August 1995

100% 50% 100%

Business property relief Unincorporated business Unquoted shares in a trading company Assets used in controlled business

100% 100% 50%

INVESTMENTS Enterprise investment scheme (EIS) 2020/21 Maximum investment for income tax relief in £2m qualifying ‘knowledge intensive companies’ Maximum investment for income tax relief in £1m non-qualifying ‘knowledge intensive companies’ Rate of income tax relief 30%

2019/20 £2m £1m 30%

Seed enterprise investment scheme (SEIS) Maximum investment for income tax relief Rate of income tax relief

2020/21 £100,000 50%

2019/20 £100,000 50%

Venture capital trusts (VCT) Maximum investment for income tax relief Rate of income tax relief

2020/21 £200,000 30%

2019/20 £200,000 30%

Social investment tax relief (SITR) Maximum investment for income tax relief Rate of income tax relief

2020/21 £1m 30%

2019/20 £1m 30%

6


BUSINESS TAX CORPORATION TAX

Year ending Year ending 31 March 2021 31 March 2020

Main rate Loans to participators*

19% 32.5%

19% 32.5%

* Where not repaid within 9 months of the year end.

CAPITAL ALLOWANCES

2020/21 2019/20

Annual investment allowance (AIA)* 100% on first 100% on first £1,000,000/£200,000 £1,000,000 Writing down allowance (WDA) Plant and machinery 18% 18% WDA – special rate pool 6% 6% Energy saving plant or machinery N/A 100% Environmentally beneficial plant or machinery N/A 100% Structures and buildings allowance (SBA)** 3% 2% Motor cars CO2 emissions < 50g/km - FYA 100% 100% CO2 emissions 50g/km – 110g/km - WDA 18% 18% CO2 emissions > 110g/km - WDA 6% 6% Research and Development (R&D) allowances 100% 100% * An AIA of £1 million applies to investments made between 1 January 2019 and 31 December 2020. From 1 January 2021 the AIA will reduce to £200,000. For accounting periods which straddle 1 January 2021, transitional arrangements will apply and should be checked as to the maximum amount of AIA that can be claimed. ** The SBA applies to qualifying commercial structures and building costs where a contract has been entered into on or after 29 October 2018.

R&D AND PATENT BOX

Expenditure incurred on or after 1 April 2020

SME tax credit* SME payable credit R&D expenditure credit Patent Box * Relief capped at €7.5m per project.

230% 14.5% 13% 10% 7

Expenditure incurred 1 Jan 2020 to 31 March 2020 230% 14.5% 12% 10%


CORPORATION TAX SELF ASSESSMENT AND QUARTERLY PAYMENTS Quarterly instalment payments apply to large companies (taxable profits of at least £1,500,000 p.a. reduced pro rata by the number of associated companies). From 1 April 2019, accelerated instalment payments apply to ‘very large’ companies (taxable profits of at least £20,000,000 p.a. again reduced pro rata and by associated companies). Timetable for corporation tax self-assessment and quarterly payments Event

Large companies due date

Very large companies due date

From start of accounting period:

From start of accounting period:

First quarterly payment date Second quarterly payment date Third quarterly payment date Fourth quarterly payment date Payment date for companies not in quarterly instalments regime Filing date for tax return

6 months and 13 days

2 months and 13 days

9 months and 13 days

5 months and 13 days

12 months and 13 days

8 months and 13 days

15 months and 13 days

11 months and 13 days

9 months and 1 day after the end of the accounting period

Within 12 months of the end of the accounting period

EMPLOYEE BENEFITS Beneficial loans Threshold Official rate of interest from 6 April 2020 Company vans and fuel Van benefit Fuel benefit

£10,000 2.25% 2020/21

2019/20

£3,490 £666

£3,430 £655

Fuel benefit – cars For 2020/21 the benefit is £24,500 (£24,100 2019/20) multiplied by the relevant percentage as shown over page (plus 4% diesel supplement where applicable but capped at 37%). 8


EMPLOYEE BENEFITS Company cars The car benefit is calculated by multiplying the list price of the car when new (not the purchase price) by a percentage that is dependent on the level of approved CO2 emissions of the car. CO2 Electric emissions range in g/km (miles)

% of car’s % of car’s list price to list price to be taxed in be taxed in 2020/21* 2019/20

0 N/A 0 16 1-50 >130 2 16 1-50 70–129 5 16 1-50 40-69 8 16 1-50 30-39 12 16 1-50 <30 14 16 51-54 15 19 55-59 16 19 60-64 17 19 65-69 18 19 70-74 19 19 75-79 20 22 80-84 21 22 85-89 22 22 90-94 23 22

CO2 emissions in g/km

% of car’s list price to be taxed in 2020/21*

95-99 100-104 105-109 110-114 115-119 120-124 125-129 130-134 135-139 140-144 145-149 150-154 155-159 160-164 165+

% of car’s list price to be taxed in 2019/20

24 23 25 24 26 25 27 26 28 27 29 28 30 29 31 30 32 31 33 32 34 33 35 34 36 35 37 36 37 37

This percentage is increased by 4% for diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standards but subject to an overall cap at 37%. * For cars registered on or after 6 April 2020, the appropriate percentage will be 2% lower than the above rates for 2020/21 and set at 36% for emissions of 165-169g/km and capped at 37% for emissions of over 169g/km.

APPROVED MILEAGE RATES 45p per mile for the first 10,000 miles and 25p for additional mileage above that limit. Employers can also pay up to 5p per mile for each employee who travels as a passenger on a business journey. HMRC’s approved ‘tax-free’ business mileage rates for employees using company cars are reviewed quarterly, with any changes taking effect from 1 March, 1 June, 1 September and 1 December. The rates are the maximum amount that can be paid without a charge to tax and NIC for business miles. If an employee receives less than these rates, then they can claim tax relief on the difference. The current rates can be found at: www.hmrc.gov.uk/cars/advisory_fuel_current.htm 9


NATIONAL INSURANCE CONTRIBUTIONS Class 1 - Employer’s and employee’s

2020/21

2019/20

Lower earnings limit (LEL) per week

£120

£118

Primary threshold per week

£183

£166

Secondary threshold per week

£169

£166

Upper earnings limit (UEL) per week

£962

£962

Earnings over the LEL qualify an individual for certain state benefits and must be reported under PAYE, but no employee’s NICs are payable until earnings exceed the primary threshold of £183 per week (£9,500 per annum) and employer’s NICs once earnings exceed the secondary threshold of £169 per week (£8,788 per annum).

Class 1 – Employer’s - Rate above secondary threshold (no upper limit)

13.8%

13.8%

12%

12%

2%

2%

- Married women and widows rate above threshold, below UEL (2% above)

5.85%

5.85%

Class 1A (taxable benefits)

13.8%

13.8%

Class 1B (PAYE settlement agreement)

13.8%

13.8%

£6,475

£6,365

Class 1 – Employee’s - Rate between primary threshold and UEL

- Rate above UEL

Class 2 (self-employed)

- Small profits threshold

- Flat rate per week

£3.05

£3.00

Class 3 (voluntary)

- Flat rate per week

£15.30

£15.00

Class 4 (self-employed)

- Lower limit

£9,500

£8,632

- Upper limit

£50,000

£50,000

- Rate between limits

9%

9%

- Rate above upper limit

2%

2%

£4,000*

£3,000

Employment allowance (per employer)

* From 1 April 2020, the Employment Allowance is only available to employers with an employer NICs bill of less than £100,000 in the previous tax year. 10


INDIRECT TAX VAT

2020/21 2019/20

Standard rate

20%

Reduced rate Registration threshold Deregistration threshold

20%

5%

5%

£85,000

£85,000

£83,000

£83,000

Cash accounting entry limit

£1,350,000

£1,350,000

Cash accounting exit limit

£1,600,000

£1,600,000

Annual VAT returns entry limit

£1,350,000

£1,350,000

Annual VAT returns exit limit

£1,600,000

£1,600,000

Flat rate scheme taxable turnover entry limit

£150,000

£150,000

Flat rate scheme total business income exit limit

£230,000

£230,000

STAMP DUTIES Residential property SDLT rate# Up to £125,000

Rate for additional residential properties

Zero

3%

Over £125,000 to £250,000

2%

5%

Over £250,000 to £925,000

5%

8%

Over £925,000 to £1,500,000

10%

13%

Over £1,500,000

12%

15%

Over £500,000 if bought by a non-natural person (e.g. a company)*

15%

N/A

* 15% rate applies to the entire consideration, subject to certain exemptions. # First time buyers purchasing a residential property worth less than £300,000 are exempt from SDLT. First time purchases with a value of between £300,000 and £500,000 will pay SDLT at a rate of 5% on the amount in excess of £300,000. If the property purchase is above £500,000, first time buyers’ relief will not be available.

11


STAMP DUTIES Non-residential or mixed use property

SDLT rate

Up to £150,000

Zero

Over £150,000 to £250,000

2%

Over £250,000

5%

Residential SDLT rate leases*

Non-residential/ mixed use leases*

Up to £125,000

Up to £150,000

Zero

SDLT rate Zero

Over £125,000 1% Over £150,000 to £5,000,000

1%

2%

Over £5,000,000

* Based on net present value of rents.

Other

SD rate

Share purchases over £1,000

0.5%*

* Rounded up to the nearest £5.

ANNUAL TAX ON ENVELOPED DWELLINGS The filing date for ATED returns and payment is 30 April 2020 for properties in the charge to tax on 1 April 2020. Property value (£)

1 April 2020 – 31 March 2021 1 April 2019 – 31 March 2020 ATED charge ATED charge

500,001 – 1,000,000

£3,700

1,000,001 – 2,000,000

£7,500

£7,400

2,000,001 – 5,000,000

£25,200

£24,800

5,000,001 – 10,000,000

£58,850

£57,900

10,000,001 – 20,000,000

£118.050

£116,100

20,000,001 +

£236,250

£232,350

12

£3,650


PROPOSED CHANGES 2021/22 SDLT FOR NON-RESIDENTS A new 2% surcharge will be introduced from 1 April 2021 for all purchases of residential property by non-UK residents. This is in addition to the current surcharge that applies to additional dwellings or those purchased by a non-individual. CAPITAL ALLOWANCES First year allowances on ultra-low emission vehicles will be extended from 1 April 2021 to 31 March 2025, but will only be available for zero emission cars (currently available for cars with emissions of less than 50g/km). Business cars with CO2 emissions of less than 50g/km will attract writing down allowances of 18% per annum and cars with emissions exceeding 50g/km will be eligible for writing down allowances of 6% per annum within the special rate pool. NATIONAL INSURANCE HOLIDAY FOR VETERANS From April 2021, employers will be able to claim a â&#x20AC;&#x2DC;holidayâ&#x20AC;&#x2122; rate of 0% Class 1 secondary national insurance when employing veterans. The holiday rate lasts for 12 months from the date of commencement of the eligible veterans first civilian employment.

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For further information please contact: Cheltenham: 01242 237661 Staverton: 01242 680000 We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by us. Hazlewoods LLP is a Limited Liability Partnership registered in England and Wales with number OC311817. Registered office: Staverton Court, Staverton, Cheltenham, Gloucestershire, GL51 0UX. A list of LLP partners is available for inspection at each office. Hazlewoods LLP is registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England & Wales.

www.hazlewoods.co.uk @Hazlewoods_Tax

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Tax Facts 2020/2021

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Tax Facts 2020/2021